June 20 (Bloomberg) -- Viacom Inc.'s Paramount Pictures may benefit from a split with DreamWorks, the studio controlled by Steven Spielberg, according to JPMorgan Chase & Co.

DreamWorks accounted for $157 million, or 35 percent, of administrative expenses in 2007, Imran Khan, a JPMorgan analyst, wrote today in a report. Those costs contributed to a 22 percent drop in operating income at Viacom's filmed entertainment unit last year, he said.

Paramount may improve profit and reduce risk by making lower-budget films under the Nickelodeon and MTV labels, the strategy of Viacom Chief Executive Officer Philippe Dauman, Khan said. DreamWorks may leave by November if Spielberg's company can obtain as much as $600 million from Indian billionaire Anil Ambani, according to a person with knowledge of the matter.

``We see DreamWorks as a high cost supplier of films to Paramount,'' said Khan, who recommends investors buy Viacom shares and doesn't own any himself.

Viacom, the New York-based media company controlled by billionaire Sumner Redstone, fell 57 cents to $31.50 at 4:15 p.m. in New York Stock Exchange composite trading. The Class B shares have dropped 28 percent this year.

Paramount spokeswoman Patti Rockenwagner declined to comment.

Studio Sale

Spielberg and DreamWorks co-founders David Geffen and Jeffrey Katzenberg sold the studio to Viacom for $1.6 billion in 2006 and have since produced ``Transformers'' and ``Indiana Jones and the Kingdom of the Crystal Skull,'' the top film this year based on worldwide ticket sales.

DreamWorks also plans to raise $500 million to $600 million in debt, the person said. The company will seek a distribution agreement for about six films a year with a Hollywood studio including General Electric Co.'s Universal Pictures, News Corp.'s Twentieth Century Fox or Paramount, the person said. That agreement may be reached by November.

With financing and distribution, DreamWorks may relocate to Universal Studios, where Spielberg has maintained an office throughout his career, the person said. In February, Dauman said Paramount, led by studio CEO Brad Grey, is willing to negotiate a new agreement when the contract expires.

Viacom will distribute films from DreamWorks through 2010 and own titles created during the studio's time at Paramount. If the split occurs, Spielberg will remain involved in Paramount projects including sequels. Paramount will also continue to release titles from DreamWorks Animation SKG Inc., a separate company led by Katzenberg.

The success of DreamWorks' ``Transformers,'' the third highest-grossing film in the U.S. last year, was offset by underperformers including ``The Heartbreak Kid,'' Khan said.

``Given that Paramount is a relatively small studio, one big-budget underperforming title has a disproportionate effect on its bottom line,'' Khan said.

To contact the reporter on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net

Last Updated: June 20, 2008 16:29 EDT